Twisted iron steel wound wires by Tom via Pixabay
This stock market is shaky at best. Some might even say you need “nerves of steel” to navigate through it successfully.
As it turns out, the continued geopolitical turmoil has kept prices high for many commodities. And that has put a bid under commodity stocks, including, ironically, steel stocks. That makes the VanEck Steel ETF (SLX) a consideration for AI-weary investors.
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SLX is a 40-stock ETF, although 10 stocks account for 57% of the fund’s assets. That includes U.S. firms involved with the commodity, as well as those in Latin America and Asia. As steel (HVQ26) is a bit of a market niche, with far less glamour than gold, silver, or even copper, its $167 million asset base, 20 years since it debuted, is not surprising.
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When we examine SLX’s past performance (above), its 1-year return simply made up for lost time. If we interpolate between that and the 5-year return, we realize that most of the past five years has resulted in lagging performance for SLX versus the S&P 500 Index ($SPX).
It also speaks to the highly volatile nature of investing in steel stocks. Indeed, the ETF’s beta over that time period indicates that it was 24% more volatile than the S&P 500. And at 21x trailing earnings, this basket is not particularly cheap. Still, that might not matter to the market when commodity prices are rising more than stock prices are.
When global trade friction or broad economic weakness threatens corporate earnings, domestic steelmakers benefit from trade protectionism. High tariffs on foreign steel (such as Section 232 measures and tariff hikes up to 50%) effectively block cheap imports from flooding the domestic market.
This gives domestic U.S. producers strong pricing power and guaranteed market share, creating an insulated revenue moat (sustainable competitive advantage) even if overall global demand softens.
And, while consumer…
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